Question

In: Accounting

Waterways Continuing Problem 06 a (Part 3) The section of Waterways that produces controllers for the...

Waterways Continuing Problem 06 a (Part 3)

The section of Waterways that produces controllers for the company provided the following information.

Sales in units for month of February 4,200
Variable manufacturing cost per unit $10.00
Sales price per unit $43.00
Fixed manufacturing overhead cost (per month for controllers) $83,000
Variable selling and administrative expenses per unit $2.90
Fixed selling and administrative expenses (per month for controllers) $13,250


Using this information for the controllers, determine the contribution margin ratio, the degree of operating leverage, the break-even point in dollars, and the margin of safety ratio for Waterways Corporation on this product.

Contribution Margin Ratio (Round to 0 decimal places, e.g. 25%.) %
Degree of Operating Leverage (Round to 2 decimal places, e.g. 5.25.)
Break-even Point in Dollars $
Margin of Safety Ratio (Round to 1 decimal place, e.g. 5.2%.) %

Solutions

Expert Solution

Correct Answer:

Contribution margin Ratio

70%

Degree of operating leverage

4.19

Break-even point in Dollars sales

$    1,37,500

Margin of safety Ratio

23.9%

Working:

Per unit

4200 units

A

Sales Revenue

43

180600

Less: Variable expense

Variable Manufacturing cost

10

Variable Selling and administrative expenses

2.9

B

Total variable expenses per unit

12.9

54180

C=A-B

Contribution margin

30.1

126420

D =C/A *100

Contribution margin Ratio

70%

70%

Sales Revenue

$    1,80,600

Less: Variable expense

Variable Manufacturing cost

$         42,000

Variable Selling and administrative expenses

$         12,180

Total variable expenses per unit

$       54,180

Contribution margin

$    1,26,420

Less: Fixed Expense

Fixed Manufacturing overhead cost

$         83,000

Fixed selling and administrative expense

$         13,250

Total Fixed Costs

$       96,250

Operating Income

$       30,170

A

Contribution margin

$      1,26,420

B

Operating Income

$         30,170

A/B

Degree of operating leverage

4.19

A

Total Fixed Costs

$         96,250

B

Contribution margin Ratio

70%

C =A/B

Break-even point in Dollars sales

$      1,37,500

A

sales revenue at 4200 units

180600

B

Sales revenue Break-even point

$      1,37,500

C=A-B

Margin of safety

$         43,100

D =C/A *100

Margin of safety Ratio

23.9%

End of Answer.

Thanks


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